- - Monday, March 14, 2022

President Biden’s State of the Union address made clear that his “top priority is getting prices under control.” This follows polls showing that by January, inflation replaced COVID-19 as Americans’ top concern. Prices surged 7.5% over the past year, the highest Consumer Price Index reading in four decades.

The cause of this inflation is no mystery. Policymakers from both parties authorized a large amount of short-term spending to support American households and businesses during the pandemic, which left households with more than $2 trillion in additional savings above the pre-pandemic trend line.

The result is an excess of aggregate demand. In short, consumers are spending more than usual. Compounding the impact on inflation, consumers are spending disproportionately more on supply-constrained goods, rather than services, due to the lingering effects of the pandemic. As a result, prices on many goods are being bid up.



The standard policy prescription for excess aggregate demand would be for the Federal Reserve to raise interest rates, and markets indicate that they expect interest rates to rise this year. However, some of the inflation is driven by supply-side issues that cannot be overcome by raising interest rates — without causing excessive unemployment.

This puts policymakers in a political bind in an election year. Consumers will not reward policymakers for fixing inflation if the cost is significantly higher unemployment. Policymakers are responding with one of the oldest tricks in the political playbook: a blame game to divert attention.

Many politicians have attempted to blame the 2021 and 2022 inflation surge on corporate consolidation and a purported explosion of greed. While this might give politicians a good soundbite, it will do nothing to fight inflation. Moreover, the argument is conceptually and mathematically unsound.

Economists, including those inside Mr. Biden’s White House, dismiss the consolidation argument for simple mathematical reasons. Slow consolidation of firms over decades would not cause a sudden surge in prices after decades of low inflation. Likewise, no rapid consolidation event occurred in 2021 that could explain a sudden price level rise.

Economists dismiss the “greed” argument for commonsense reasons. Companies always seek to maximize shareholder value, and did not suddenly become any more “greedy” in 2021 than in previous years.

These simple realities have not stopped efforts to use this narrative to promote misguided anti-tech and antitrust legislation like Sen. Amy Klobuchar’s American Innovation and Choice Online Act. AICOA would allow radical bureaucratic intervention when a company’s stock price passes a point where its market capitalization is deemed too big.

This bill abandons the consumer welfare standard, in which regulators make decisions based on whether a business practice would harm consumers. Instead, it would subject American companies to an enormous suite of costly regulations that comparably sized foreign competitors would not have to follow. Needless to say, increasing operating costs for companies with regulatory red tape is not an effective way to reduce prices for consumers.

Studies by economists like Austan Goolsbee, a former top economist for former President Barack Obama, have shown that digital inflation is low, and online goods and services are less expensive today than they were in 2014. In other words, tech companies are helping Americans fight inflation and find better prices.

According to the American Consumer Institute, anti-tech and antitrust legislation like AICOA would “prohibit many practices that have enabled tech companies to access high-quality goods and services for little or no cost” leaving “consumers with fewer choices and higher prices.”

Consumers can’t afford higher prices, which are rising faster than salaries.

Jason Furman, another former top economist for Mr. Obama, says “almost everything other than the Federal Reserve is a sideshow when it comes to the dynamics of inflation.” Mr. Furman’s view reflects the overwhelming consensus among economists. In a University of Chicago survey of top economists, 96% did not indicate agreement with the notion that antitrust legislation will fix inflation.

Even the Biden White House has conceded that “antitrust moves are unlikely to reduce costs for U.S. businesses or consumers immediately,” according to The New York Times. Having acknowledged this, policymakers should abandon their inflation blame game and pursue real solutions.

• Trevor Wagener is director of research and economics at the Computer & Communications Industry Association. From 2019 to 2021, he was deputy chief economist of the U.S. Department of State.

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